Community Organisations Back Safe Lending Laws That Will Bring Financial Wellbeing To Our Communities

On Tuesday 8 March ActionStation, Christians Against Poverty (CAP), Citizens Advice Bureau (CAB), Debtfix, FinCap, Good Shepherd NZ, Muaūpoko Tribal Authority, New Zealand Council of Trade Unions - Te Kauae Kaimahi (NZCTU), Ngā Tāngata Microfinance and The Salvation Army sent a joint letter to all parliamentary parties’ consumer spokespeople calling for support for the Credit Contracts and Consumer Finance Act (CCCFA).

The joint letter urges parties across the spectrum to support the 2021 reform of the CCCFA as the changes will deliver crucial safeguards protecting whānau across Aotearoa from financial disaster.

The organisations say no whānau in Aotearoa should end up facing serious stress, losing their most valuable belongings or going without kai because a lender is collecting on a loan that was always going to be unaffordable.

FinCap chief executive Ruth Smithers says the Act’s updated requirements mean a fairer balance is struck between a lender and borrower. This will mean whānau have a clear mechanism to challenge a lender to make things right when the rules have not been followed.

"A debt spiral where a whānau is further in deficit and debt every day is completely avoidable. This is especially the case where lenders are clearly required to do an honest check that they are selling a loan which will not immediately see a dilemma between paying the loan or buying food."

She also acknowledged many were doing it tough even before pandemic challenges and called for sustainable funding for financial mentors who work alongside whānau, and the fair and affordable community lending and debt solutions supports which add another tool in the toolbox for financial mentors.

CAB deputy chief executive Dr Andrew Hubbard says they support the reforms.

"The 2021 reforms to credit law, which ensure affordable, and responsible lending are critical to the wellbeing of our communities."

CAP senior policy advisor Michael Ward says any unintended impacts such as making mortgage applications or business loans unnecessarily difficult should be reduced as much as possible.

"However, we believe it’s important to ensure that any changes to legislation do not come at the expense of vulnerable borrowers who are preyed on by loan sharks practicing unethical behaviour-the reason the CCCFA reform was introduced in the first place," he says.

"Every day we continue to be called by people drowning in debt when they should never have been granted loans in the first place; that is, when lenders have failed to conduct proper affordability assessments."

CAP recently had a lender wipe more than $10,000 of interest charges and fees from a $29,000 loan for a young couple with three children, after it was discovered they hadn’t assessed the couple’s affordability appropriately.

In a separate case, another lender wiped off nearly $20,000 of interest charges and fees from a $32,000 loan for a client that earns less than the living wage-again after it was discovered they hadn’t conducted a proper affordability assessment.

"Changes to the CCCFA that ensure lenders carry out proper affordability assessments have been hard won and the benefits of the reforms are overwhelmingly positive for those vulnerable to financial hardship," says Michael.

"As a result of the changes to the CCCFA, we’re anticipating fewer clients experiencing financial hardship, fewer clients going through insolvency procedures, and less unreasonable fees and advertising targeted at vulnerable consumers. We’re quite happy about that.

"We therefore urge the government, in its review, to continue to require lenders to adhere to thorough affordability assessments."

Ngā Tāngata Microfinance chief executive officer Natalie Vincent says they relieved more low-income New Zealanders from unmanageable, unaffordable loans in the last 12 months than any preceding year.

"Safer lending laws and rigorous affordable assessments are critical in preventing irresponsible practices by lenders. The reforms have been put in place to protect borrowers from harm, and we expect to see the positive impact coming through over the next year," she says.

"We have already seen a significant change in the high-interest rates that were causing harm to the most vulnerable lenders since the interest rate caps were introduced in June 2020 and predict the latest reforms to bring about similar change to financial wellbeing."

Good Shepherd NZ chief executive Fleur Howard says New Zealand has a debt problem.

"There are too many Kiwis with unmanageable debt because of easy access to fast credit and not enough checks and balances. The 2021 reforms to the CCCFA are critical to breaking these harmful debt spirals and moving the New Zealand experience of borrowing and lending to a more responsible setting," she says.

"From a longer-term financial wellbeing perspective, we want Kiwis to take care when deciding whether to access credit - and so it’s positive that in just three months we’ve already noticed that our clients have a better understanding of what they will be asked to provide evidence of when they want to borrow money."

You can read the full letter on the FinCap website.

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